Microsoft Word Altavilla Boucinha Peydro ep word version docx

j,t
-0.832
-1.423*
0.124**
0.133**
(0.775)
(0.708)
(0.0548)
(0.0574)
NPL ratio
i,j ,
-0.339**
-0.312**
0.0247***
0.0247***
(0.135)
(0.141)
(0.00858)
(0.00869)
Regulatory capital ratio
i,j, 
-0.309**
-0.343**
0.0105*
0.0138*
(0.124)
(0.144)
(0.00614)
(0.00735)
Cost-to-income ratio
i,j, 
0.0140
0.0132
-0.00417***
-0.00424**
(0.0292)
(0.0292)
(0.00153)
(0.00159)
(Short-term rate
t
) x (NPL ratio
i,j, 
)
0.452
-0.00901
(0.899)
(0.0109)
(Slope
t
) x (NPL ratio
i,j,
)
-0.387**
0.0000636
(0.163)
(0.00240)
(Short-term rate
t
) x (Regulatory capital ratio
i,j, 
)
3.670***
-0.0534
(1.065)
(0.0412)
(Slope
t
) x (Regulatory capital ratio
i,j, 
)
-0.170
-0.0125
(0.356)
(0.00990)
Bank FE
Yes
Yes
Yes
Yes
Number of observations
567
567
615
615
R
2
0.138
0.161
0.197
0.202
Stock returns
CDS spreads

---

33 
Monetary policy surprises are derived from an event study using a 2-day window around policy 
announcements, also controlling for the surprise component of a large set of macroeconomic 
releases (as shown in equation 4). The vector 
, ,
comprises a set of indicators of bank 
balance sheet characteristics as of the end of the year preceding each monetary policy 
announcement, indicated by . 
The results reported in Table 8 indicate that monetary policy easing shocks, as measured by 
surprises on both the level (short-term rate) and (country-specific) slope of the yield curve, tend to 
have a positive impact on banks’ market valuations. An unexpected decrease of ten basis points in 
the short-term rate – with no surprise change in the slope of the yield curve – causes the median 
bank’s stock price to increase by about 1.5% (column 1); a shock to the country-specific slope of 
the yield curve of the same magnitude is estimated to increase the bank’s stock price by about 
0.15%. Table 8 also shows that a monetary policy surprise flattening the term structure reduces 
bank CDS spreads, i.e. market participants’ perception of bank credit risk. Finally, results in the last 
column of Table 8 show that the market assessment of the impact of monetary policy easing on 
banks’ CDS changes is independent of bank asset quality and regulatory capital. In other words, the 
CDS of banks with higher NPLs or lower regulatory capital do not increase following monetary 
policy easing surprises. Overall, the results presented in Table 8 support those shown in Figures 8 
and 9 above, suggesting that non-standard monetary policy easing tends to be viewed as positive 
both by banks’ shareholders and debtholders.